Chapter 8 (this chapter) establishes a Copyright Royalty Commission for the purpose of periodically reviewing and adjusting statutory royalty rates for use of copyrighted materials pursuant to compulsory licenses provided in sections 111 (secondary transmissions by cable systems), 115 (mechanical royalties) and 116 (jukebox) of the bill. In addition, the Commission will make determinations as to reasonable terms and rates of royalty payments as provided in section 118 (public broadcasting), and to resolve disputes over the distribution of royalties paid pursuant to the statutory licenses in sections 111 and 116.

The Committee recognizes that the industries affected by the royalty rates over which the Commission has jurisdiction are very different, and it is therefore expected that any adjustment of a rate by the Commission shall be based on the economic conditions peculiar to the industries affected by that rate. Likewise, the Committee recognizes the fact that the cable television industry is a developing industry in transition, whereas the recording and jukebox industries are long-established. Therefore, the Committee has chosen periods of different lengths in which the Commission is to review the rates affecting those industries. Rates for retransmission of copyrighted works by cable television systems will be reviewed in 1980 and each subsequent fifth year. Rates established for mechanical reproduction will be reviewed in 1980, 1987, and in each subsequent 10th year. Rates for performance by jukebox will be reviewed in 1980, and in each subsequent 10th year. Rates and terms under section 118 will be reviewed in 1982 and in each subsequent fifth year. The Committee does not intend that rate changes, whether up or down, should necessarily be made as the result of such periodic reviews.

The Committee has chosen to stagger the times for review of the various rates established under the bill so as to balance the workload of the Commission. Cable and copyright owners agreed to a set of standards for the adjustment of rates which the Committee in large measure has accepted. No specific standards governing the establishment or adjustment of rates by the Commission, other than rates for cable transmissions, have been detailed in the legislation, because the Committee did not wish to limit the factors that the Commission might consider in a world of constantly changing economics and technology. However, it is anticipated that the Commission will consider the following objectives in determining a reasonable rate under sections 115 and 116:

(1)

The rate should maximize the availability of diverse creative works to the public.

(2)

The rate should afford the copyright owner a fair income, or if the owner is not a person, a fair profit, under existing economic conditions, in order to encourage creative activity.

(3)

The rate should not jeopardize the ability of the copyright user -

(a)

to earn a fair income, or if the user is not a person, a fair profit, under existing economic conditions, and

(b)

to charge the consumer a reasonable price for the product.

(4)

The rate should reflect the relative roles of the copyright owner and the copyright user in the product made available to the public with respect to relative creative contribution, technological contribution, capital investment, cost, risk, and contribution to the opening of new markets for creative expression and media for their communication.

(5)

The rate should minimize any disruptive impact on the structure of the industries involved and on generally prevailing industry practices.

Similar considerations are noted in connection with Commission review of rates and terms for public broadcasting in the discussion of section 118, above.

Structure of the Copyright Royalty Commission. The Senate bill provides that, upon certifying the existence of a controversy concerning distribution of statutory royalty fees or upon periodic petition for review of statutory royalty rates by an interested party, the Register of Copyrights, is to convene a three member panel to constitute a Copyright Royalty Tribunal for the purpose of resolving the controversy or reviewing the rates.

The Senate bill provides that the Tribunal be appointed by the Register from among the membership of the American Arbitration Association or similar organization. The Tribunal is to exist within the Library of Congress.

Due to constitutional concern over the provision of the Senate bill that the Register of Copyrights, an employee of the Legislative Branch appoint the members of the Tribunal, the Committee adopted an amendment providing for direct appointment of three individuals by the President. The name of the Tribunal was changed to the Copyright Royalty Commission.

Although under the Committee Amendment, the Commission is to be an independent authority, it is to receive administrative support from the Library of Congress.

The Commission is authorized to appoint a staff to assist it in carrying out its responsibilities. However, it is expected that the staff will consist only of sufficient clerical personnel to provide one full time secretary for each member and one or two additional employees to meet the clerical needs of the entire Commission. Members of the Commission are expected to perform all professional responsibilities themselves, except where it is necessary to employ outside experts on a consulting basis. Assistance in matters of administration, such as payroll and budgeting, will be available from the Library of Congress.

The Committee expects that the President shall appoint members of the Commission from among persons who have demonstrated professional competence in the field of copyright policy.

Adjustment of Cable Television Royalty Rates. Section 801(b)(2) authorizes the Commission to make determinations concerning the adjustment of the copyright royalty rates contained in Section 111. Such determinations are to be made solely in accordance with the provisions contained in Section 801(b)(2)(A), (B), (C), and (D). The time periods when such adjustments may be made are set forth in Section 804.

Under Section 801(b)(2)(A), the Commission may adjust the rates established in Section 111(d)(2)(B) (section 111(d)(2)(B) of this title) to reflect

(1)

national monetary inflation or deflation, or

(2)

changes in the average rates charged cable subscribers for the basic service of providing secondary transmission to maintain the real constant dollar level of the royalty fee per subscriber which existed as of the date of enactment of this legislation. The purpose of this provision is to assure that the value of the royalty fees paid by cable systems is not eroded by changes in the value of the dollar or changes in average rates charged cable subscribers. The Committee recognizes, however, that no royalty fees will be paid by cable systems until the legislation is effective on January 1, 1978, and accordingly that the royalty fee per subscriber base calculated at the time of enactment must necessarily constitute an estimated value. In the Committee's view, and based on projections supplied by the interested parties, the total royalties produced under the fee schedule at the time of enactment should approximate $8.7 million.

In adjusting the fee the Copyright Royalty Commission is limited to changes reflecting national monetary inflation or deflation or changes in the average rates charged cable subscribers for the basic service of providing secondary transmissions. Concern was expressed during the hearings on the revision legislation that cable systems may reduce the basic charge for the retransmission of broadcast signals as an inducement for individuals to become subscribers to additional services (e.g., pay-cable). Such a shift of revenue sources would have the effect of understating basic subscriber revenues and would deny copyright owners the level of royalty fees for secondary transmission contemplated by this legislation. Accordingly, such shifts of revenue sources, if they do occur, should be taken into account by the Commission in adjusting the basic rates.

There are also two limitations on the power of the Commission to adjust rates under Section 801(b)(2)(A). The first provides that no change in the rates established by Section 111(d)(2)(B) is permitted if the average rates charged cable system subscribers for the basic service of providing secondary transmissions exceeds the change in national monetary inflation. Thus, in the situation where subscriber rates during a particular adjustment period increase 20 percent but national monetary inflation increases only 10 percent no change or reduction in the rates is permitted.

The second limitation provides that no increase in the royalty fee shall be permitted based on any reduction in the average number of distant signal equivalents per subscriber. The purpose of this limitation is to make clear that if the average number of distant signals carried by a cable system is reduced in the future (and thereby the average number of distant signal equivalents per subscriber) no increase in the royalty fee to offset this reduction is permitted. The limitation does not, however, preclude any change in the rates that may be required to maintain the real constant dollar level of royalty fees per subscriber because of national monetary inflation or deflation or changes in the average rates charged subscribers for the basic service of providing secondary transmissions.

The Commission may also consider, in its discretion, any other factor relating to the maintenance of the real constant dollar level of royalty fees per subscriber and need not increase the royalty rates to the full extent, provided it can be demonstrated that the cable industry has been restrained by subscriber rates regulating authorities from increasing the rates for the basic service of providing secondary transmission.

Increase in the Number of Distant Signals. Under Section 801(b)(2)(B), the Commission may adjust the rates established in Section 111(d)(2)(B) if the rules and regulations of the FCC are amended at any time after April 15, 1976, to permit the carriage of additional distant signals. In this event the Commission may ensure that the rates for the additional distant signal equivalents resulting from such carriage are reasonable in light of the changes effected by the amendment to the FCC rules and regulations.

The purpose of this provision is to give the Commission broad discretion to reconsider the royalty rates applicable to (but only to) the carriage of any additional distant signals permitted under the rules and regulations of the FCC after April 15, 1976. The present FCC rules limiting the number of distant signals that may be carried by cable systems have the effect of protecting copyright owners by restricting the amount of television broadcast programming retransmitted into distant markets. If these rules are changed in the future to allow additional cable carriage of television programs it is the Committee's judgment that the royalty rates paid by cable systems should be adjusted to reflect such changes. At the same time, Section 801(b)(2)(B) makes clear that the royalty rates may not be adjusted with respect to

(1)

distant signals permitted under FCC rules and regulations in effect on April 15, 1976;

(2)

distant signals of the same type (i.e., independent, network or noncommercial educational) substituted for such permitted signals; or

(3)

distant television broadcast signals first carried after April 15, 1976, pursuant to an individual waiver of the FCC rules and regulations as such rules and regulations were in effect on April 15, 1976. Royalty adjustments with respect to any distant signal equivalent or any fraction thereof represented by the carriage of such distant signals may be made pursuant to Section 801(b)(2)(A).

In determining the reasonableness of rates under this provision, the Commission should consider, among other factors, the economic impact that such adjustment may have on copyright owners and users, including broadcast stations, and the effect of such additional distant signal equivalents, if any, on local broadcasters' ability to serve the public.

Change in the Syndicated and Sports Program Exclusivity Rules.

Section 801(b)(2)(C) provides that the Commission may adjust the rates established in Section 111(d)(2)(B) in the event of any change in the FCC rules and regulations with respect to syndicated and sports program exclusivity after April 15, 1976. In this event the rates may be adjusted to assure that such rates are reasonable in light of the changes to such rules and regulations. Any such adjustment, however, shall only apply to the affected television broadcast signals carried on those systems affected by change. For this purpose, the Commission may exercise its discretion to adopt royalty schedules for particular classes of cable systems.

The purpose of this subclause is similar to that of Section 801(b)(2)(B). The syndicated and sports program exclusivity rules of the FCC have the effect of protecting copyright owners by restricting the cable carriage of certain distant television programming. If these rules are changed in the future to relax or increase the exclusivity restrictions, it is the Committee's judgment that the royalty rates paid by cable systems should be adjusted to reflect such changes.

Adjustment of the Small System Royalty Fees. Section 801(b)(2)(D) provides that the small system gross receipts limitations established in Section 111(d)(2)(C) and (D) may be adjusted to reflect national monetary inflation or deflation or changes in the average rates charged cable system subscribers for the basic service of providing secondary transmissions to maintain the real constant dollar value of the exemptions provided therein. That is, the Commission is directed to look at these two factors to insure that systems of the same size as are now entitled to the exemptions provided for in sections 111(d)(2)(C) and (D) continued to be so entitled. For the purposes of section 111(d)(2)(C) references to the gross receipt limitations of that section mean all of the dollar amount specified therein.

Distribution of Royalty Fees. Section 801(b)(3) provides that the Commission is authorized to distribute the royalty fees deposited with the Register of Copyrights under Sections 111 and 116 and to determine the distribution of such fees where a controversy exists.

Institution and Conclusion of Proceedings. Section 804 establishes the time periods during which the Commission shall institute and conclude proceedings for the adjustment or distribution of royalty fees.

Periodic Adjustment of Certain Rates. Under Section 804(a) proceedings to adjust the royalty rates specified in Sections 115 (mechanical royalty) and 116 (juke-box) and proceedings under Section 801(b)(2)(A) and (D) (cable television rates for certain purposes), are instituted in the following periodic time intervals:

(1)

On January 1, 1980, the Chairman of the Commission is required to publish in the Federal Register notice of the commencement of proceedings to adjust all the rates referred to in Section 804(a).

(2)

Thereafter, during the calendar years specified below, any owner or user of a copyrighted work whose royalty rates are specified in the legislation, or by a rate established by the Commission, may file a petition with the Commission declaring that the petitioner requests an adjustment of the rate. If the Commission determines that the applicant has a significant interest in the royalty rate for which adjustment is requested, the Chairman of the Commission shall cause notice to be published in the Federal Register of this determination together with notice of the commencement of proceedings to adjust the rate.

(A)

In proceedings to adjust the cable television rates for certain purposes under Sections 801(b)(2) (A) and (D), such petitions may be filed during 1985 and in each subsequent fifth calendar year.

(B)

In proceedings under Section 801(b)(1) to adjust the mechanical royalty rate as provided in Section 115, such petitions may be filed in 1987 and in each subsequent tenth year.

(C)

In proceedings under Section 801(b)(1) to adjust the jukebox royalty rate as provided in Section 116, such petitions may be filed in 1990 and in each subsequent tenth calendar year.

Immediate Review of Cable Television Rates for Certain Purposes.

Section 804(b) provides that following an event described in Section 801(b)(2)(B) or (C), any owner or user of a copyrighted work whose royalty rates are specified by Section 111, or by a rate established by the Commission, may, within 12 months, file a petition requesting an adjustment of the rates. In this event the Commission is required to proceed as in Section 804(a)(2). Any change in the royalty rates made by the Commission pursuant to this provision may be reconsidered in 1980, 1985, and each fifth calendar year thereafter in accordance with the provisions in Section 801(b)(2)(B) or (C).

The purpose of this provision is to reflect the Committee's concern about any change in the rules and regulations of the FCC pertaining to cable carriage of distant signals or to syndicated or sports program exclusivity. The Committee believes that if these rules and regulations are revised, amended, or changed in any manner by the FCC, any owner or user of a copyrighted work should have an immediate right, exercisable for a 12 month period following the date such changes are finally effective, to request an adjustment of the royalty rates specified in Section 111. Further, it is the Committee's intent that any change made by the Commission pursuant to such a petition may be reviewed again in 1980, 1985, and each subsequent fifth calendar year, as the case may be, and under the standards established in Sections 801(b)(2)(B) and (C). It is also the Committee's intent that the ability to petition the Commission to adjust the rates pursuant to this subsection is not limited, following the first adjustment, to the subsequent five year periods specified, but may arise at any time as FCC rule changes described above take place.

Institution of Proceedings to Adjust Public Broadcasting Royalty Rates. Section 804(c) provides that the institution of proceedings under Section 801(b)(1) concerning the determination of reasonable terms and rates of royalty payments as provided in Section 118 shall proceed when and as provided in that section.

Institution of Proceedings To Distribute Royalty Fees. Section 804(d) provides that with respect to proceedings under Section 801(b)(3) concerning the distribution of royalty fees in certain circumstances under Section 111 or 116 the Chairman of the Commission shall, upon determination by the Commission that a controversy exists concerning such distribution, publish a notice of commencement of proceedings to distribute the royalty fees in the Federal Register.

Prompt Resolution of Proceedings. Section 804(e) provides that all proceedings instituted by the Commission shall be initiated without delay following publication of the notices specified in this section and that the Commission is required to render a final decision in any such proceeding within one year from the date of publication of the notice.

Judicial Review. The Senate bill provides that, following a final determination in any proceeding with respect to royalty rates, the Copyright Royalty Tribunal is to transmit its decision to the Senate and House of Representatives for review. Within 90 days of such transmittal either House of Congress may nullify the determination of the Tribunal by adoption of a resolution expressing disapproval of such determination. Judicial review of determinations of the Royalty Tribunal under the Senate bill is permitted only where:

(1)

The determination was procured by corruption, fraud, or undue means;

(2)

there was evident partiality or corruption in any of the members of the Tribunal; or

(3)

any member of the Tribunal was guilty of any misconduct by which the rights of any party were prejudiced.

The Committee concluded that determinations of the Copyright Royalty Commission were not appropriate subjects for regular review by Congress and that the provisions of the Senate bill providing for judicial review were far too restrictive. Therefore, it amended the Senate bill to eliminate automatic Congressional review and to broaden the scope of judicial review. The amended bill provides for the full scope of judicial review provided by Chapter 7 of the Administrative Procedure Act (5 U.S.C. 701 et seq.). Congressional review of the activities of the Copyright Royalty Commission will occur as part of the oversight functions of the Judiciary Committees of the House of Representatives and the Senate. The oversight process will provide the Congress sufficient information to determine whether statutory changes are needed at some time in the future.

The expanded judicial review provided in the Committee amendment will permit much more detailed, thoughtful, and careful review of possibly arbitrary or capricious determinations of the Commission than can be provided by Congressional review

Chapter effective Oct. 19, 1976, see section 102 of Pub. L. 94-533, set out as a note preceding section 101 of this title